Show Me The Money Or Go Home: Federal Courts Wrestle With Addressing Reverse-Payment Settlements After Supreme Court’s Actavis Decision

By Ankur Kapoor and Rosa M. Morales

Nearly a year after the Supreme Court held in FTC v. Actavis that reverse-payment settlement agreements between branded and generic pharmaceutical companies are subject to antitrust scrutiny under the rule of reason, federal district courts are struggling with the thorny issue of whether plaintiffs need to show them the money.

More specifically, district courts remain confounded by what constitutes a “payment” for purposes of antitrust challenges to settlements of Hatch-Waxman pharmaceutical patent infringement litigation, and whether a monetary transfer from the patent holder to the alleged infringer, i.e., a “reverse payment,” is necessary to state an antitrust claim attacking the competitive effects of the settlement.  Before embarking on a rule-of-reason analysis in such cases, some district court judges seem reluctant or unwilling to say “go” before they see the green.

As discussed in a previous post – “Are Bright-Line Rules The Right Prescription For Reverse-Payment Cases?” – in January the U.S. District Court for the District of New Jersey dismissed the antitrust challenge to a reverse-payment settlement in In re Lamictal Direct Purchaser Antitrust Litigation because there was no cash payment from the patent holder to the would-be generic competitor, and narrowly interpreted Actavis as imposing a “bright-line” requirement of a cash payment.  The court therefore held that it was unnecessary to engage in the requisite full-blown rule-of-reason analysis to determine the settlement’s anticompetitive effects (if any).

However, just a few months earlier, in September 2013 the same district court – but a different judge – had taken a less restrictive view of Actavis in In re Lipitor Antitrust Litigation.  The Lipitor court treated as an open question the issue of whether an antitrust complaint could meet the “plausibility” pleading standard under Bell Atlantic Corp. v. Twombly where no major cash payment was involved in a reverse-payment settlement between Pfizer and Ranbaxy that allegedly unlawfully delayed generic entry of Pfizer’s super-blockbuster Lipitor.  Instead, Pfizer agreed to drop its patent-infringement suit against Ranbaxy based on Pfizer’s patented blood-pressure medication, Accupril, in exchange for a $1 million payment by Ranbaxy (Pfizer’s claims were allegedly worth significantly more) and for Ranbaxy’s dropping its action against Pfizer over Lipitor.  Nevertheless, the court granted the plaintiffs leave to amend their complaint to include allegations of non-cash payments while noting that “nothing in Actavis strictly requires that the payment be in the form of money.”

The Lamictal court was not persuaded by Lipitor’s reading of Actavis, stating that the Lipitor decision’s grant of leave to replead was “more like a request for further briefing than a decision,” and “reflect[s] [an] interpretation[] of Actavis which – to this Court’s thinking – [is] unsupported by the words of Actavis or [is] inapposite.”

Similarly, the Lamictal court was also not persuaded by the bolder approach the U.S. District Court for the District of Massachusetts took in applying Actavis to these issues in denying two defendants’ motion to dismiss the complaint in In re Nexium Antitrust Litigation.  The Nexium court read Actavis as sweeping in non-monetary payments, stating that “[n]owhere in Actavis did the Supreme Court explicitly require some sort of monetary transaction.”

While Actavis resolved a split among the circuit courts about the appropriate overall analytical framework to apply in Hatch-Waxman reverse-payment antitrust cases, it is now apparent that the Supreme Court’s direction to apply the rule of reason is no guarantee of a uniform approach.  Divergent post-Actavis district-court views about what exactly constitutes a “payment,” and whether cash is required, demonstrate that district courts, even a year after Actavis, are still struggling to find their way to a consistent approach in analyzing the potentially anticompetitive effects of these settlements.

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Ankur Kapoor is a Partner at Constantine Cannon.  Rosa M. Morales is a Litigation Associate at Constantine Cannon.  Mr. Kapoor and Ms. Morales recently assisted Lloyd Constantine as a consultant to the court in In re Modafinil Antitrust Litigation, a multi-district reverse-payment litigation pending in the U.S. District Court for the Eastern District of Pennsylvania.

– Edited by Gary J. Malone